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December 2016

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The world economy is likely to expand no faster in 2016 than in 2015, its slowest pace in five years with the exception of India. Trade and investment are weak. Sluggish demand is leading to low inflation and inadequate wage and employment growth, the Organisation for Economic Co-operation and Development (OECD) has said in its Interim Economic Outlook. It has called for urgent polices to reverse the trend.

The downgrade in the global outlook since the previous Economic Outlook in November 2015 is broadly based, spread across both advanced and major emerging economies, with the largest impacts expected in the US, the euro zone and economies reliant on commodity exports, like Brazil and Canada.

Financial instability risks are substantial, as demonstrated by recent falls in equity and bond prices worldwide, and increasing vulnerability of some emerging economies to volatile capital flows and the effects of high domestic debt.

The OECD projects that the global economy will grow by 3 per cent this year and 3.3 per cent in 2017, which is well below long-run averages of around 3.75 per cent. This is also lower than would be expected during a recovery phase for advanced economies, and given the pace of growth that could be achieved by emerging economies in convergence mode.

According to OECD, the US will grow by 2 per cent this year and by 2.2 per cent in 2017, while the UK is projected to grow at 2.1 per cent in 2016 and 2 per cent in 2017. Canadian growth is projected at 1.4 per cent this year and 2.2 per cent in 2017, while Japan is projected to grow by 0.8 per cent in 2016 and 0.6 per cent in 2017.

The euro area is projected to grow at a 1.4 per cent rate in 2016 and a 1.7 per cent pace in 2017. Germany is forecast to grow by 1.3 per cent in 2016 and 1.7 per cent in 2017, France by 1.2 per cent in 2016 and 1.5 per cent in 2017, while Italy will see a 1 per cent rate in 2016 and 1.4 per cent rate in 2017.

With China expected to continue rebalancing its economy from manufacturing to services, growth is forecast at 6.5 per cent in 2016 and 6.2 per cent in 2017. India will continue to grow robustly, by 7.4 percent in 2016 and 7.3 percent in 2017. By contrast, Brazil’s economy is experiencing a deep recession and is expected to shrink by 4 per cent this year and only to begin to emerge from the downturn next year.